Headquartered in Clichy, France, just outside Paris, L’Oréal is the world’s largest beauty products company, with brands that include L’Oréal Paris and Maybelline (mass-market), Lancôme (luxury), and Redken and SoftSheen/Carson (retail and salon). L’Oréal owns Dallas-based SkinCeuticals that conducts cosmetology and dermatology research. With more than 50 percent of sales generated outside Europe, L’Oréal has focused on acquiring brands globally. L’Oréal owns UK-based natural cosmetics retailer The Body Shop International, which has about 2,550 retail stores worldwide. L’Oréal’s dermatology unit, Galderma S.A., is a joint venture with Nestlé.
L’Oréal SA is structured into three branches: (1) Cosmetics, (2) The Body Shop, and (3) Dermatology. The Cosmetics branch is divided into four sectors: Consumer Products, Professional Products, Luxury Products, and Active Cosmetics. Consumer Products are marketed under L’Oréal Paris, Garnier, Maybelline, Softsheen, and Carson brands. The company’s Professional Products segment includes hair care products for use by professional hairdressers, such as Kerastase, Redken, and Matrix. L’Oréal’s Luxury Products are sold globally under such brands as Lancome, Diesel, Giorgio Armani, and Cacharel. The firm’s Active Cosmetics division, which consists of products under Vichy and La Roche Posay brands, are for sale mainly in pharmacies.
L’Oréal has a portfolio of 27 international, diverse, and complementary brands. With sales amounting to 22.5 billion euros in 2012, L’Oréal employs 72,600 people worldwide, has 43 production plants worldwide, 146 distribution centers, more than 20,000 employees in industrial operations worldwide, and 5.8 billion units produced. The world’s largest cosmetics firm by sales, L’Oréal in August 2013 offered to buy a Chinese facial mask company for about US $840m. The company, Magic Holdings International, a Hong Kong-listed cosmetics producer based in Guangzhou, is known for its facial masks, one of the fastest-growing segments in China’s cosmetics market. Magic Holdings generated revenues of about €150m in 2012, up 29 percent from the previous year. L’Oréal, which makes Lancôme creams and Garnier shampoo, said it would offer $HKD6.3 (HKD = Hong Kong Dollar) per share for the Chinese company. The offer represents a 25 percent premium on the previous day’s closing price. L’Oréal already has won approval from six shareholders representing 62.3 percent of Magic Holding’s shares. The deal requires approval from Chinese authorities.
In 1907, Eugene Schueller, a young French chemist, working with La Cagoule, developed a hair dye formula called Auréale. Schueller formulated and manufactured his own products, which he then sold to Parisian hairdressers. In 1919, Schueller registered his company as the French Society of Inoffensive Tinctures for Hair, which became L’Oréal. The guiding principles of the company were research and innovation in the field of beauty. In 1920, L’Oréal employed three chemists. By 1950, the research teams were 100 strong; that number reached 1,000 by 1984 and is nearly 2,000 today.
L’Oréal got its start in the hair-color business, but the company soon branched out into other cleansing and beauty products. L’Oréal currently markets more than 500 brands and many thousands of individual products in all sectors of the beauty business: hair color, permanents, hair styling, body and skin care, cleansers, makeup and fragrances. The company’s products are found in a wide variety of distribution channels, from hair salons and perfumeries to hyper- and supermarkets, health/beauty outlets, pharmacies, and direct mail.
L’Oréal today has five worldwide research and development centers located in: (1) Aulnay, France, (2) Chevilly, France, (3) Clark, New Jersey, (4) Kawasaki, Japan, and (5) Shanghai, China. A future facility in the USA will be in Berkeley Heights, New Jersey. L’Oréal has recently faced discrimination lawsuits in France related to the hiring of various spokespersons and institutional racism. In the United Kingdom, L’Oréal has faced widespread condemnation from the Office of Communications regarding truth in their advertising and marketing campaigns concerning the product performance of one of their mascara brands.
Protest group Naturewatch states that L’Oréal continues to test new ingredients on animals. L’Oréal has the largest factory in the Jababeka Industrial Park, Cikarang, Indonesia. L’Oréal does significant business in Indonesia.
Financially, L’Oréal is strong and is excelling globally in developing, producing, and marketing cosmetics, fragrances, and personal care products. For Q1 of 2013, L’Oréal reported sales of 5.93 billion euros, up 6.5 percent overall, including 8.5 percent up in North America and 11.8 percent up in Africa and the Middle East.
Vision and Mission
L’Oréal does not have a vision statement, but the company’s mission statement is provided on the corporate website, as follows:
· Beauty for all—For more than a century, L’Oréal has devoted itself solely to one business: beauty. It is a business rich in meaning, as it enables all individuals to express their personalities, gain self-confidence and open up to others.
· Beauty is a language—L’Oréal has set itself the mission of offering all women and men worldwide the best of cosmetics innovation in terms of quality, efficacy and safety. It pursues this goal by meeting the infinite diversity of beauty needs and desires all over the world.
· Beauty is universal. Since its creation by a researcher, the group has been pushing back the frontiers of knowledge. Its unique Research arm enables it to continually explore new territories and invent the products of the future, while drawing inspiration from beauty rituals the world over.
· Beauty is a science. Providing access to products that enhance well-being, mobilizing its innovative strength to preserve the beauty of the planet and supporting local communities. These are exacting challenges, which are a source of inspiration and creativity for L’Oréal.
· Beauty is a commitment. By drawing on the diversity of its teams, and the richness and the complementarity of its brand portfolio, L’Oréal has made the universalisation of beauty its project for the years to come.
· L’Oréal, offering beauty for all.
Regarding sustainable development, Corporate Knights, a Global Responsible Investment Network, has selected L’Oréal for its 2012 ranking of the Global 100 Most Sustainable Corporations in the World. L’Oréal has received this distinction for the fifth consecutive year. L’Oréal has more than 84 percent of its production globally being manufactured in compliance with the ISO 9001 (quality), ISO 14001 (environment), OHSAS 18001 (safety) certifications.
In San Luis Potosi, Mexico, L’Oréal opened the largest hair color production plant in the world in 2012, the firm’s second plant in Mexico. L’Oréal views Mexico as the gateway between both North and South America. The new plant is in the process of becoming LEED certified and features advanced technologies for water treatment and solar-powered equipment. L’Oréal Mexico has reduced water consumption per unit by 60 percent and carbon dioxide emissions per unit by 60 percent in recent years.
On November 12, 2012, for its 10th anniversary, Vigeo European rating agency revealed a new range of environmental-social-governance (ESG) indices measuring companies’ corporate and social responsibility on a global or European level, and more specifically in France and the United Kingdom. Vigeo’s France index ranks L’Oréal as “the leading company in social responsibility” among 20 companies. The France index is based on 35 criteria, consolidated in an overall score covering six areas of social responsibility: human rights, human resources, environment, business behavior, corporate governance, and community involvement. L’Oréal ranks fourth in Vigeo’s Europe index (120 companies) and fifth in Vigeo’s World index (120 companies).
L’Oréal’s organizational chart is provided in Exhibit 1 . Note there is no chief operations officer (COO), but perhaps Jean-Philippe Blanpain serves that role. Note the divisional-by-geographic-region structure in conjunction with divisional-by-product. This could prove problematic in the sense that, for example, professional products operations in the Africa, Middle East Zone could report to either Geoff Skinsley or An Verbulst-Santos.
L’Oréal’s famous advertising slogan was “Because I’m worth it.” In the mid-2000s, this slogan was replaced by “Because you’re worth it.” In late 2009, the slogan was changed again to “Because we’re worth it.” The shift to “we” was made to create stronger consumer involvement in L’Oréal philosophy and lifestyle and provide more consumer satisfaction with L’Oréal products. L’Oréal owns a Hair and Body products line for kids called L’Oréal Kids, the slogan for which is “Because we’re worth it too.”
L’Oréal has five product groupings:
EXHIBIT 1 L’Oréal’s Organizational Structure
Source: Based on company documents.
· 1. L’Oréal LUXE (Luxury): Lancome, Giorgio Armani, YSL Beaute, Biotherm, Kiehl’s, Ralph Lauren, Shu Uemura, Cacharel, Helena Rubinstein, Diesel, Viktod&Rolf, Stella McCartney, and Maison Martin Margiela. As indicated in Exhibit 2 , L’Oréal Luxe sales grew in the first quarter of 2013 by 8.1 percent, largely as a result of the acquisition of Clarisonic. In a market that has slowed slightly, L’Oréal Luxe is continuing to increase market share worldwide.
· 2. Consumer Products: L’Oréal Paris, Garnier, Maybelline New York, Le Club Des Createurs, and Essie. In the first quarter of 2013, sales were up 5.5 percent.
· 3. Professional Products: L’Oréal Professionnel, INOA, Serie Expert, Serie Nature, L’Oréal Prefessionnel Homme, Tecni.art, Play ball, and Texture Expert. In quarter one of 2013, sales were down 0.4 percent.
· 4. Active Cosmetics: Vichy, La Roche Posay, Skinceuticals, Inmeov, Roger&Gallet, and Sanoflore. In the first quarter of 2013, sales were up 6.2 percent.
· 5. The Body Shop: Dermablend Coverage Cosmetics are sensitivity tested, non-comedogenic, non-acnegenic, fragrance free, water-resistant, smudge-resistant, long lasting and easy to use. For the third quarter of 2012, The Body Shop recorded like-for-like sales growth at 5.3 percent as shown in Exhibit 3 . The Body Shop is growing strongly, especially in the Middle East and in South East Asia. Several important new product innovations include BB Cream All-in-One, a one-of-a-kind texture that transforms on application, as well as Pore Minimiser in its iconic Tea Tree range featuring Community Fair Trade organic tea tree oil from Kenya. The Body Shop continues to recruit new customers through its e-commerce channel, with 20 sites now live. The brand is rolling out its innovative Pulse boutique concept globally. In the first quarter of 2013 sales were up 0.8 percent.
EXHIBIT 2 L’Oréal’s Sales by Operational Division and Geographic Zone (000,000 euros omitted)
|By division||Q1 2012||Q1 2013||% Change|
|BY GEOGRAPHIC ZONE|
|New Markets, of which:||2,091.7||2,231.1||6.7%|
|– Asia, Pacific||1,124.3||1,188.4||5.7%|
|– Latin America||433.5||458.7||5.8%|
|– Eastern Europe||360.0||389.7||8.2%|
|– Africa, Middle East||173.8||194.3||11.8%|
|The Body Shop||180.4||181.9||0.8%|
Source: Company documents.
Notice in Exhibit 2 that L’Oréal did especially well in the first quarter of 2013 in their L’Oréal Luxe segment and in their Africa/Middle East region.
Note in Exhibit 3 that L’Oréal’s revenues and net income have increased nicely in recent years.
Note in Exhibit 4 that L’Oréal’s goodwill increased almost €5 billion in 2011 which is not good, but the company has been paying off its long-term debt nicely, which is good.
Exhibit 5 provides an overview of L’Oréal as compared to some of its leading competitors. Note that L’Oréal is by far the largest cosmetics and fragrances firm in terms of revenue, number of employees, and net income. L’Oréal also has the highest profit margin and revenue per employee. But every day is another day, and all of these rivals strive to overtake L’Oréal anywhere and everywhere they can.
EXHIBIT 3 L’Oréal’s Income Statement (000,000 euros omitted)
|Other Revenue, Total||0.0||0.0||0.0||0.0|
|Cost of Revenue, Total||6,587.7||5,851.5||5,696.5||5,161.6|
|Selling, General, Administrative Expenses, Total||11,387.2||10,478.5||10,077.7||9,124.2|
|Research and Development||790.5||720.5||664.7||609.2|
|Depreciation and Amortization||0.0||0.0||0.0||0.0|
|Interest Expense (Income), Net Operating||0.0||0.0||0.0||0.0|
|Unusual Expense (Income)||93.7||108.1||74.0||277.6|
|Other Operating Expenses, Total||30.1||−11.8||79.2||0.0|
|Interest Income (Expense), Net Nonoperating||0.0||0.0||0.0||0.0|
|Gain (Loss) on Sale of Assets||0.0||0.0||0.0||0.0|
|Income Before Tax||3,875.9||3,466.7||3,151.9||2,471.0|
|Income Tax, Total||1,005.5||1,025.8||909.9||676.1|
|Income After Tax||2,870.4||2,440.9||2,242.0||1,794.9|
|Equity In Affiliates||0.0||0.0||0.0||0.0|
|U.S. GAAP Adjustment||0.0||0.0||0.0||0.0|
|Net Income Before Extraordinary Items||2,867.7||2,438.4||2,239.7||1,792.2|
|Total Extraordinary Items||0.0||0.0||0.0||0.0|
GAAP, generally accepted accounting principles.
Source: Based on company documents.
Estée Lauder Companies, Inc.
Headquartered in New York City, Estée Lauder has annual sales of about $10 billion and net income of about $1 billion. Estée Lauder manufactures and markets skin care, makeup, fragrance, and hair care products. The company’s products are sold in more than 150 countries and territories under a number of brand names, including Estee Lauder, Aramis, Clinique, Origins, M.A.C, Bobbi Brown, La Mer, and Aveda. The company is also the global licensee for fragrances or cosmetics sold under brand names, such as Tommy Hilfiger, Donna Karan, Michael Kors, Tom Ford, and Coach. The company sells its products in more than 30,000 points of sale, consisting of upscale department stores, specialty retailers, upscale perfumeries and pharmacies, and prestige salons and spas.
Headquartered in New York City, Avon Products is the world’s largest direct-seller firm, and by far the largest direct seller of cosmetics and beauty-related items. Avon is the fifth-largest cosmetics and fragrance firm in the world. The company receives sales from catalogs and a website, but the vast majority of its sales come from its 6.4 million independent sales representatives in some 110 countries. Since 1892, Avon has been on the forefront of empowering women to be their own boss and be independent and become leaders in communities and business.
Avon products include cosmetics, fragrances, toiletries, jewelry, apparel, home furnishings, watches, footwear, children’s products, skin care, and gift and decorative products, nutritional products, housewares, and entertainment and leisure products. Avon owns and sells Silpada jewelry. A few well-recognized company brand names include Avon Color, ANEW, Skin-So-Soft, Advance Techniques, Avon Naturals, and mark. Although a large U.S. iconic corporation, Avon is today struggling to recover from poor management strategies that led to CEO Jung resigning amid global bribery investigations. The direct-selling business model has waned in the USA, but it is effective in many emerging economies globally. Millions of motivated direct sellers in many countries are Avon’s key competitive advantage going forward, but the company needs a clear strategic plan.